You may have heard of market spread before in the cryptocurrency world, but what exactly does it mean? If you are getting into crypto or already have, then here is what you will need to know.
What is Market Spread in crypto?
Market spread is actually quite simple in theory: the difference between the highest bid offer and the lowest ask offer. In short, it is the difference between one person’s sell price and another person’s purchase price.
For example, one person might be selling a single coin of their chosen crypto type for $20, whereas another person wants to buy it for $15. Calculating the market spread means removing the highest big offer from the lowest ask offer, leaving the market spread at $5.
From there, you can work out the percentage, which is used in a lot of market insights and reports. Knowing the percentage of market spread is not just about the price, but also about supply and demand, as well as the total value of something being sold.
Why does it matter?
Market spread is essentially a way to measure supply and demand without having to look at averages.
The highest bid offer is the demand – the absolute maximum that somebody is willing to pay for one coin of a crypto. The lowest ask offer is the cheapest that any owners of those coins are willing to sell. From this, you can see the difference in expectations between sellers and buyers.
This is also important for figuring out whether a trade is profitable:
- If a coin has a $20 asking price and a $15 bid price, then selling that crypto technically leads to a $5 loss.
- If that ask price increases to $25 and the bid price goes to $24, you would still be making a $1 loss, even though the bid price is higher than the original ask price.
Because of this, the market spread can be used to see what the actual costs of trading would be. It ignores all growths and dips, relying entirely on the current highest and lowest prices involved in a trade.
Why should I care about the market spread?
An increase in the spread means that there is a greater distance between the price buyers are willing to pay, and the price sellers are aiming for. This makes trades less likely and more unprofitable, but not impossible – you can still sell and turn a profit if you would make more than you originally spent on the crypto.
However, market spread also indicates the current popularity and demand, or the chances of somebody selling. A high spread means that nobody is willing to buy at a high price or that the current owners refuse to sell at a low price, which means that trades likely are not happening.
Market spread is often overlooked and can take a while to wrap your head around, but it is an important metric in working with crypto for trades. If you want to know more, use sites like https://swyftx.com/learn/crypto-market-spread/ to get a full breakdown of what it can mean.